Rethinking the MBA

As the global financial crisis has subsided, some business schools have added one or two courses on ethics to their MBA programs. The courses are mostly an afterthought. The thinking behind them is: “Our financial institutions have behaved badly, so maybe it would be a good idea to add a touch of ethical instruction to the curriculum.” Nothing could be more revealing of the mindset of our economic thinkers than that business ethics has become a sideshow, an add-on, an extra frill.

The prevailing view of the economy as a giant autonomous mechanism following inexorable laws is a highly abstract, quasi-scientific conception. Like the laws of gravity, there isn’t much room for ethics. But, in fact, this prevailing view conflicts sharply with how we actually experience the economy in our day-to-day encounters.

The Hungarian philosopher Karl Polanyi emphasized the importance of what he called “tacit knowledge,” or non-conscious knowledge that accumulates from our experience with ideas, objects, people or institutions without our being fully aware of it.

As the global financial crisis has subsided, some business schools have added one or two courses on ethics to their MBA programs. The courses are mostly an afterthought. The thinking behind them is: “Our financial institutions have behaved badly, so maybe it would be a good idea to add a touch of ethical instruction to the curriculum.” Nothing could be more revealing of the mindset of our economic thinkers than that business ethics has become a sideshow, an add-on, an extra frill.

The prevailing view of the economy as a giant autonomous mechanism following inexorable laws is a highly abstract, quasi-scientific conception. Like the laws of gravity, there isn’t much room for ethics. But, in fact, this prevailing view conflicts sharply with how we actually experience the economy in our day-to-day encounters.

The Hungarian philosopher Karl Polanyi emphasized the importance of what he called “tacit knowledge,” or non-conscious knowledge that accumulates from our experience with ideas, objects, people or institutions without our being fully aware of it.

Out tacit knowledge of the economy varies in fundamental ways from the conception of it as an autonomous self-corrective mechanism. In our actual experience with it, we encounter ethical questions and dilemmas at every turn, whether we refer to the economy of Japan or the United States: —Do the products and services our companies offer give good value for the money? —Are banks putting their clients’ interests ahead of their own? —Do businesses accept full responsibility for the“externalities” of pollution, energy depletion and climate change? —Are companies putting worker and consumer safety ahead of profitability? —Is shipping jobs to other nations violating an unwritten social contract at home? —Do companies stay faithful to stewardship responsibility when it interferes with maximizing shortterm profitability? —Is public health and safety jeopardized by bad workplace habits ranging from carelessness in drug manufacturing to the spread of infection in hospitals?

Successful capitalism is essentially an ethical enterprise. The founder of modern capitalism, Scottish philosopher Adam Smith, firmly held this belief. Smith has been wildly misinterpreted because of his “invisible hand” metaphor. Subsequent generations of economic thinkers have cited the invisible hand concept to support the idea of the economy operating on automatic pilot. But Smith knew that successful capitalism depended on what he called “moral sympathy,” a fundamentally ethical concept.

Economists embrace the concept of the economy as a mechanism because it seems to make their discipline more scientific. But the reality is that the economy is a deeply human system that cannot be torn out of its context as part of society, drenched through and through with ethical issues.

Once you think of the economy as an inherent part of society, a number of our most cherished economic assumptions appear artificial and deeply flawed. These include assumptions that economic participants always act in accord with their rational self-interest, that the economic system is self-corrective, and that companies should follow the principle of “shareholder value” so the interests of shareholders get priority over all other stakeholders.

These and other assumptions of current economic thinking are highly problematic. They need to be challenged critically. Instead of adding a mere course or two on ethics, my suggestion is that our business schools adopt a strategy.

The strategy would be to develop business cases that highlight ethical issues and that business schools can share in common. The recent financial crisis is a rich source.

Cases to consider might be: »» Countrywide Financial, a company that ruthlessly sold home mortgages to people who couldn’t afford them. »» AIG, a giant insurance company that permitted a small London branch to take wild and irresponsible chances, with disastrous results. »» Lehman Brothers and Bear Stearns, companies that allowed executive arrogance to drive them into bankruptcy with a huge ripple effect on the global economy. »» Goldman Sachs, a company that abandoned its long tradition of putting its clients first by selling them mortgage-backed securities it knew were designed to fail.

In each of these and many others, the encouraged corporate culture was to “game the system,” and the results came to undermine public trust. This strategy may prove to be more than enough for business schools uncomfortable with the subject of business ethics. My hope is that at least a few courageous business schools will be willing to rethink the meaning and nature of the MBA from top to bottom and give the ethical dimension of capitalism the centrality it deserves. tj

Originally appeared in Tokyo Journal Issue #271 of the Tokyo Journal. Click here to order from Amazon